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GTAP Resource #3660

"Analysis of Climate Policies with GDyn-E"
by Golub, Alla, Thomas Hertel and Kemal Sarica

A key element of the current debate over climate policy in the US is that of competitiveness. If the US undertakes legislation that raises energy costs, it is likely that energy intensive industries in the US will lose competitiveness, unless other countries also undertake similar measures. This phenomenon is commonly referred to as “leakage”, since abatement in one region may give rise to the shifting of emissions intensive production to other regions, thereby diluting the global abatement achieved. Computable General Equilibrium (CGE) models have been widely used to analyze the question of leakage, as they are explicitly designed to capture the impact of economic policies on the relative competitiveness of sectors/regions of the global economy.

To date, most CGE models have focused on leakage through the trade channel, i.e. US climate policy results in higher priced exports, which are displaced by exports from non-participating economies. At the same time, import penetration in the US market by these same economies rises as their products become more competitive. The trade leakage effect is expected to dominate in the short run. However, over the longer run, we expect climate/energy policies to affect investment incentives and hence the flow of capital across borders. This second channel is termed investment leakage. It has been more difficult to quantify due to uncertainty about capital mobility. The few studies that have looked at changes in competitiveness and carbon leakages generated by the reallocation of capital incorporate capital mobility under very restrictive assumptions (e.g., perfect capital mobility or no capital mobility). This view ignores the empirical evidence of imperfect capital mobility – particularly in the medium run. This research offers additional insights on the question of investment leakage by developing a multi-sector, multi-region recursive dynamic applied general equilibrium model called GDyn-E.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2011
Created: Golub, A. (4/18/2011)
Updated: Golub, A. (8/1/2011)
Visits: 3,588
- Climate change policy
- Dynamic modeling
- Calibration and parameter estimation

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